Hearings on Broadband Grants

I’ve always tried to keep politics out of this blog. That hasn’t been too hard since I’ve found that getting better broadband for any community is almost always a non-partisan issue. I’ve worked with City and County Councils and Boards all over the country, and I haven’t seen that the political makeup of the local governing body has much impact on the degree to which they want to find better broadband for citizens.

That’s why I was surprised to see that the newly seated House of Representatives immediately announce a set of hearings to look at broadband grants. You know from reading my blog that I think there is a lot of room for improvement in the BEAD grant program – due in large degree to the complicated grant rules established by Congress. I would welcome hearings that would examine some of the over-the-top grant rules if the purpose of the hearings was to create legislation to make it easier to award and spend the BEAD grant funds.

But that doesn’t seem to be the intent of these hearings. The hearings want to look at two issues. The first is to make sure that the grants are only used for connecting to unserved locations and not used for ‘overbuilding’. This has been a major talking point for the big cable companies for years – they don’t want to see any grant money used to encroach on areas they think of as their service territories. The whole idea of not using grants for overbuilding is ludicrous – there are not many homes in the country where at least one ISP can’t provide service – so every new broadband network that is constructed is overbuilding somebody.

The vast majority of the BEAD grants will be used in rural areas, and the idea that rural funding will be used for ‘overbuilding’ is ludicrous. I don’t know anybody who advocates using grant funding to overbuild rural fiber networks or other existing fast networks. All of the state grant programs I’ve worked with have a challenge process to make sure this doesn’t happen, and it looks like the BEAD grants have several crosschecks to make sure this doesn’t happen. Even if a BEAD grant is awarded in error, I would think a State Broadband office would yank the grant award before letting grant money be used to overbuild rural fiber.

The issue that has the big cable companies up in arms is that the IIJA grant legislation says that once a state has satisfied bringing broadband to unserved and underserved locations, grant funding can be used to improve broadband in inner cities and places that the big ISPs have ignored. There will not likely be a lot of BEAD grant money that goes to this purpose, but there will be some.

It’s hard to understand the reason to have a hearing on this issue. The BEAD rules are clearly defined by language crafted and enacted by Congress. The hearings will likely involve grilling officials from the NTIA on this issue. It’s an absurd scenario to picture, because the NTIA has no choice but to follow the law as written by Congress. Any hearings on this issue will likely beat up n officials at the NTIA or FCC, but will really be Congress investigating its own law.

The other stated purpose of the hearings is to make sure that the grants don’t have waste, fraud, or abuse. It’s going to be really interesting to see where this leads in hearings. The only big historical cases of grant waste and abuse I know of are the way the big telcos often took CAF II funding and made no upgrades. I don’t picture these hearings dredging up past abuses by the big ISPs, so I’m having a hard time imagining where else this line of inquiry might go.

I fear that the biggest repercussion of this kind of hearing is that it’s going to make already-cautious grant officials even more cautious. The folks at the NTIA and State Broadband offices are going to worry that everything they do will be under a microscope from Congress – and they are going to get even more careful not to make any bad mistakes in awarding grants. Nobody wants to be yanked in front of Congress in a year and be grilled about a specific grant award. And perhaps that’s the purpose of these grants – to intimidate officials into funneling more grant funding to the safe choice of giving it to big ISPs.

What puzzles me the most is why hold broadband hearings of this sort. Bringing better broadband to communities is immensely popular. In the many surveys we’ve administered on the issue, the public support for bringing better broadband has always been above 90%. This is true even in communities where there is already fast broadband offered by a cable company – folks want competition. It’s hard picturing any headlines coming from these hearings that can benefit the politicians holding the hearings.

These hearings only make sense as a way to appease the large ISPs which contribute heavily to politicians. It’s hard to imagine that these hearings will change anything. Congress can change the BEAD grant rules any time this year, but that will take bipartisan cooperation – something that seems to have disappeared from Washington DC. But the hearings will only allow for the airing of the big ISP grievances, and I guess that is something.

Why the Complexity?

It’s been over a year since the BEAD grant program was announced. While there has been a lot of activity on BEAD, there is still a long way to go before this grant money is used to build new broadband infrastructure. Most of the delay is due to the incredible complexity of the BEAD grant rules.

I work with a lot of different state broadband grant programs, and I can’t help but notice the tremendous difference in the complexity of the process between state and BEAD grants. The priority for state grant programs is usually to quickly get the money out the door and spent on infrastructure. State legislators that approve grant funding want to see construction started no later than the year after the grant award, and hopefully sooner. State grant offices are generally given instructions to identify worthwhile projects and get the money approved and quickly into the hands of the ISPs to build networks.

The differences between state grants and BEAD are stunning. I have one client that won a $10 million state grant based on a simple grant application of less than 20 pages. The grant reviewers asked a few follow-up questions, but the whole process was relatively easy. The grant office was relying on the challenge process by ISPs to identify grants that were asking to overbuild areas that already have broadband. The challenge process seemed to work – a number of the grants filed in this particular program were successfully challenged. But the bottom line is that the funding was made available to start construction in less than a year from the date when the grant office originally solicited grant applications.

Why are the BEAD grants so complicated? It starts with Congress, and a lot of the complexity is directly specified in the IIJA legislation that created the grants. My pet theory is that the complexity was introduced by lobbyists of the large ISPs that wanted to make the grants unfriendly to everybody other than big ISPs with the resources to tackle the complex rules. It’s unfathomable to me that congressional staffers would have invented these complex rules on their own. I knew on my first reading of the IIJA legislation that the grants favor big companies over small ones.

In the legislation, Congress decided to give the administration of the grants to the NTIA. The NTIA had a major decision to make on day one. The agency could have taken the approach of smoothing out the congressional language to make it as easy as possible for ISPs seeking the funding. The NTIA had political cover to take a light-touch approach since the legislation stressed the importance of quick action to solve the rural broadband crisis. The White House has also been urging federal agencies to speed up the process of turning IIJA funding into infrastructure projects.

Unfortunately, the NTIA didn’t take this approach. It looks like the agency did just the opposite – the agency embellished and strengthened the congressional language and made it even more complex to file for the grants.

I don’t think the NTIA had any agenda to make the grant more complicated. It’s impossible to think the agency had early discussions about how to make it harder to use the grant funding. But the agency did have an overriding desire to do these grants the right way. The general industry consensus is that the grants were given to the NTIA instead of the FCC because of the terribly botched RDOF subsidy program. It would be hard to design a federal broadband program that would have been more poorly handled than RDOF (except perhaps for CAF II, which also was done by the FCC).

I think BEAD became more complex, one topic at a time. I think folks at NTIA looked at each congressionally mandated rule and asked how they could make sure that no money went to an unqualified ISP. Instead of softening grant requirements, I think the NTIA staff instead asked how they could be positive that no unworthy ISPs sneak through BEAD process – something that clearly happened in the FCC’s RDOF process. The final NTIA BEAD rules are not a manual on how to get grant money spent efficiently – but a manual on how to make sure that only qualified ISPs win the funding.

That doesn’t sound like a bad goal. Some of the ISPs that won the RDOF funding were spectacularly unqualified – either financially, managerially, or technically. But as each of the many BEAD rules was made as safe as possible, the collective combination of all of the BEAD rules being made super-safe creates major hurdles for ISPs. Almost every ISP I know is going to have a problem with at least a few of the rules – and I think many qualified ISPs are going pass on the BEAD grants. There is something wrong with a grant program that has hundred-year-old telephone companies wondering if they can qualify for the grants.

There is still a chance for State broadband offices to smooth out the worst of the BEAD rules. A State broadband office can push back against the NTIA BEAD rules that make it too hard for ISPs to get funded. The NTIA can’t excuse any specific mandate that was created by Congress – but the NTIA can relax and compromise on its interpretation of these rules.

The big challenge facing State grant offices is how hard they are willing to push back against the NTIA. Every State is under pressure to finally get the grant process underway, and any challenge will likely add time before funding is available. Every State broadband office already knows the ISPs it would like to see win the funding – those ISPs that will be conscientious in operating the network after its built. State broadband offices need to listen and react to the concerns that these ISPs have about the grant process – because if they don’t, many of the best ISPs are going to take a pass on the grants.

Serving the Most Remote Locations

There is one interesting aspect of the BEAD grant rules that I’ve never written about. There is a provision in the BEAD rules that say that if no ISP seeks funding in an unserved or underserved area, a State broadband office may engage with ISPs to find somebody willing to serve such areas.

In order to make this work, States are allowed to offer additional inducements, such as providing additional state matching funds for the grant areas. State broadband offices would also be able to provide some kind of extra scoring points during the grant processes to make such grants eligible – with all of this being done with total transparency.

A State is first required to put out a general request for ISPs to serve such areas, a step that I assume would mean issuing an RFP. If that effort fails, the State can reach out and negotiate with specific ISPs to serve the unclaimed areas.

This option is driven by the overall goal of the BEAD grants to bring broadband to everybody who is unserved or underserved. This requirement will only kick in for states that have leftover money after trying to satisfy BEAD grant applications.

It’s an interesting process, but one that I think will be needed for various reasons. First, the RDOF subsidies created what the industry is calling swiss cheese or checkerboard coverage areas, which created little pockets that are geographically separated from other likely grant areas. The FCC RDOF maps really made a mess of the rural areas of many counties, where it will be a challenge to find a solution for every one of these pockets.

There also might be parts of counties that are particularly high cost that ISPs might not pursue. The BEAD grants can award up to 75% of the cost of a grant area, but there are many rural places where 75% grant funding is not enough. My back-of-the-envelope math says that areas with costs higher than $10,000 per passing might need more than a 75% grant – and there are a lot of rural areas with costs higher than that. I think the NTIA and State broadband offices will be shocked to find out how many grant applications fit into the high-cost category.

The BEAD rules allow States to make exceptions for grant applications for high-cost areas that need more than 75% grant funding. But the rules are not ISP-friendly and allow a State broadband office to seek alternate proposals or to allow other technologies for such areas – such as fixed wireless using unlicensed spectrum or satellite broadband. It’s not hard to imagine ISPs deciding to pass on a BEAD application for grants greater than 75% if a State broadband office can ignore such grants because of the high cost.

These rules add one more layer of complexity to an already complex grant program. This adds to the calculus an ISP must do in order to decide if it wants to seek a BEAD grant in high-cost areas. Does an ISP put in for a grant request of greater than 75% with a chance that the State will instead seek a lower cost solution? Or should an ISP wait until the State broadband office is soliciting ISPs to serve the high-cost areas? I guess it will all boil down to the philosophy of each State broadband office – and they are not likely to say ahead of time how they feel about high-cost areas.

I get a little more upset every time I write about the BEAD rules. Many states have already held state broadband grant programs of the size of the money they’ll get from BEAD, and those grants have probably a tenth of the rules of the BEAD grants. These grants were processed quickly, and projects tend to start construction the year after the grant award. I have to imagine that State broadband offices are intimidated by the BEAD rules – it puts them on the spot to do everything perfectly and meet all of the NTIA rules – and that’s probably not possible.

Interest Rates and Grant Matching

I have a lot of clients looking at broadband grants that will require matching funds, and they are rightfully getting worried about the climb in interest rates.

Back when the upcoming BEAD grants were announced in November 2021, many of my clients had access to loans with interest rates in the range of 3% to 4%. The higher interest rates we are now seeing will clearly have a huge impact on the ability to afford accepting a grants to build in a rural area. Almost by definition, rural areas are sparsely populated and so it is always a challenge to cover any debt payments on grant matching funds.

Consider the following table that shows the annual debt payments that would be due for a $10 million loan for terms of 20, 25, and 30 years, at interest rates varying from 3% to 8%. This might be a loan for a $40 million BEAD grant where the grant applicant must cover the 25% matching cost for a 75% grant. The second set of numbers shows the percentage difference for each loan compared to a 20-year loan at 3%.

Interest Rate 3% 4% 5% 6% 7% 8%
20 years 672,157 735,818 802,426 871,846 943,929 1,018,522
25 Years 574,279 640,120 709,525 782,267 858,105 936,788
30 Years 510,193 578,301 650,514 726,489 805,864 888,274
20 years 100% 109% 119% 130% 140% 152%
25 Years 85% 95% 106% 116% 128% 139%
30 Years 76% 86% 97% 108% 120% 132%

The table demonstrates several things. First, big interest rate increases are a massive disincentive for an ISP to make new investments. If an ISP had a business plan last year to build a new project with a 3% loan, the debt cost has climbed 40% to 52% with a 7% or 8% interest rate. Since debt costs are one of the major expenses for building fiber, this kind of increase could easily kill expansion plans.

I know a lot of ISPs who are putting expansion plans on hold due to the interest rates. If an ISP decides to accept a high interest rate, it would only be due to a belief that the loan could be refinanced if interest rates drop. But many loans don’t allow refinancing for some fixed number of years. This is also gambling. In the past, when interest rates spiked like they are now, the rates have usually dropped back down – but there is never any guarantee that rates will drop back to the low levels of just a year ago.

This is a bigger dilemma when borrowing to match grants. Grant projects have completion requirements, and ISPs might be forced to accept a high interest rate loan due to the timing of construction. Building a grant project is different than normal planned expansion, where a project can be delayed waiting for more favorable interest rates.

One of the ways to offset higher interest rates is through longer loan terms. But that’s not always easily achievable. Many lenders don’t like making loans for more than twelve or fifteen years. It might not be easy to get a longer loan term. It’s also worth noting that one of the main consequences of banks raising interest rates is that banks start to pull back from making new loans. This may be counterintuitive, but the underlying interest rates that banks have to pay also increases when retail interest rates are higher. Higher underlying rates increase the risk and financial consequences of loan defaults. Just like home mortgages are harder to find when interest rates are higher, it’s possible that the banks that were willing to loan to grant projects might also back off.

The retraction of new debt is exactly what the Federal Reserve intends when it raises interest rates. The whole point of raising the rates is cool off an overheated economy – without going too far and causing a recession. It’s going to be a shock to at any ISP to find out that the bank it was counting on is less interested in lending to them.

Speeding Up Fiber Construction

I recently wrote a blog that said that a lot of rural folks are growing impatient in waiting for promised fiber construction. The main thrust of that blog is that local communities are not being told the real timelines for when fiber construction is coming. Federal, State, and local officials love to make the big announcement that grant funding has been awarded, but nobody wants to tell the public that the construction process might take up to four or five years.

There are a lot of factors that contribute to the speed of constructing infrastructure. A few weeks ago, the White House announced an initiative to address some of these issues to speed up the construction of the $550 billion in infrastructure that was funded with the Infrastructure Investment and Jobs Act, along with earlier money from the American Rescue Plan Act.

It’s an interesting document that lists a number of steps that have already been taken by the federal government to speed up the infrastructure construction process. Some of the initiatives listed should help to speed up large road and bridge construction projects.

But the list doesn’t describe much that is being done to speed up fiber construction. The list includes the same ineffective policies that the federal government has been announcing for years to assist broadband. For example, there will be a new emphasis on dig-once. That’s a policy that might have made some difference if implemented twenty years ago, but as far as offering any assistance for building rural broadband projects in the next few years, it is close to worthless. The list also talks about speeding up permitting on Tribal lands, which, while important, is only going to impact a limited number of rural broadband projects.

The fact is, there is not much, if anything, that the White House can do to speed up fiber construction. This is due to the detailed and specific rules in the IIJA legislation, where Congress specified a step-by-step process that must be followed before the $42.5 billion in new broadband funding can be awarded to projects. To give a few examples:

  • The IIJA insists that the new FCC maps be used to determine areas that are eligible for grants. There is no doubt that the lobbyists who suggested that language knew full well that the new maps were going to be delayed, as has already happened. We are still not done with the mapping issue since there is a convoluted challenge process getting started that is likely to be a large mess.
  • The legislation gives the grant money to states to administer but then defines a multi-step process to get a grant plan in place that is full of delays. One example is that States must draft a detailed grant plan, share it with public groups in all corners of a state, and document and address any issues that locals think are important. It’s refreshing to see a grant program that wants so much public input, but there is no way this process is going to happen quickly. It’s another reason that BEAD grants will take longer than other grant programs.

There are half a dozen other steps that must be taken before a state is ready to accept the federal grant money. It’s been almost a year since the IIJA legislation was passed, and from the perspective of the public waiting for better broadband, practically nothing has been accomplished. The NTIA and states have been busy checking off progress on the Congressionally mandated process – but everything that has been done is dealing with the paperwork mandated by Congress. At this point, it’s hard to imagine grants being awarded until at least a year from now, and that might be optimistic.

I remember reading articles after the BEAD grants were first awarded that optimistically expected grant construction to start in 2023. We’ll be lucky if much actual construction is done in 2024 because even after a grant award is made, there will be a time-consuming process of completing all of the needed paperwork for a grant winner to receive the funding. After that, most grants are going to have another delay while environmental studies are done – something that is a huge waste of time and money for any network that will be constructed in existing public rights-of-way.

I got a sinking feeling the first time that I read the IIJA order because it was clear that the detailed Congressional rules for BEAD grants were written by somebody that didn’t want the process to go quickly. We will likely never know what happened behind closed doors when the legislation was being written, but the final rules have big ISP fingerprints all over them. Making the process go slowly first extends the period while the incumbents can enjoy a few more years of monopoly profits. It also gives the big ISPs enough time to develop a strategy to snag a big share of the funding – something they clearly intend to do. This is not to say that the big ISPs will win most of the funding because there are some states that have a bias against big ISPs – but the delays give the big companies time to lobby and plan to maximize their chances.

Rural America is Losing Patience

From all across the country, I’m hearing that communities without broadband are tired of waiting for a broadband solution. Local broadband advocates and politicians tell me that folks with little or no broadband are hounding them about when they are going to see a broadband solution.

A large part of the frustration is that folks have heard that broadband is coming to rural America, but they aren’t seeing any local progress or improvement. A big part of the reason for this frustration is that folks aren’t being given realistic time frames for when they might see a solution. Politicians all gladly told the public that they had voted to solve rural broadband when the IIJA infrastructure legislation was enacted in November 2021. But almost nobody told folks the actual timelines that go along with the broadband funding.

Consider the timeline to build broadband as a result of various kinds of funding:

  • There was a recent round of ReConnect funding awarded. It generally takes 4- 6 months to get the paperwork straight after accepting a ReConnect award, and then grant winners have four years to build the network. Some of the folks in areas of the ReConnect awards that were recently awarded won’t get broadband until 2026. Most won’t see any broadband until 2024 or 2025.
  • The best timelines are with state broadband grants. Most of those awards require grant recipients to complete networks in two or three years. A lot of these grant programs were either recently awarded or will be awarded in the coming spring. The winners of these state grants will have until the end of 2024 or 2025 to complete the network construction, depending on the state and the specific grant.
  • The longest timeline comes from the FCC’s RDOF program. The FCC approved a lot of RDOF recipients in 2021 and again in 2022. A 2021 RDOF recipient has six years to build the full broadband solution – starting with 2022, the year after the award. A recipient of a 2021 RDOF award must build 40% of the network by the end of 2024, 60% of the deployment by the end of 2025, 80% of the network by the end of 2026, and 100% of the network by the end of 2027. At the end of 2027, the FCC will publish a final list of locations in the RDOF area, and the ISP has until the end of 2029 to reach any locations that have not already been covered. For an RDOF award made in 2022, add a year to each of these dates.
  • The big unknown is the giant $42.5 billion BEAD grants. We know that grant recipients will have four years to construct a network. But we don’t know yet when these grants might be awarded. It’s starting to look like grant applications might be due near the end of 2023 or even into 2024. This likely means grant awards in 2024. There will likely be an administrative pause for paperwork before the four-year time clock starts. My best estimate is that the bulk of BEAD construction will occur in 2025 and 2026, but BEAD grant projects won’t have to be completed until sometime in 2028 and maybe a little later in some cases.

In all cases, ISPs can build earlier than the dates cited above. ISPs realize that the longer they delay construction, the higher the likely cost of the construction. But some grants have built-in delays, such as having to complete an environmental study before any grant funds will be released. Many ISPs are going to suffer from supply chain issues with materials and labor and might not be able to speed up a lot.

The big problem is that people without good broadband want a solution now, not years from now. A family with a freshman in high school doesn’t want to hear that a broadband solution won’t reach them until after that student graduates from high school. People are getting frustrated by announcements from state and local politicians telling them a solution is coming – especially since most announcements aren’t being truthful about the possible timeline. Unfortunately, politicians like to deliver the good news but don’t want to be the ones to announce that faster broadband might reach folks between 2025 and 2028.

Folks are further frustrated when they hear that local governments are creating partnerships or giving grants to ISPs from ARPA funding – but again, with no immediate action or disclosures of the timeline. I am the last person in the world to give advice to local politicians – but I know if I didn’t have broadband at my home, I’d want to hear the truth about when it’s coming. This has to be tough for rural politicians who have negotiated partnerships with good ISPs but who know that a broadband solution is still likely years in the future.

Please Don’t Force Low Rates

The NTIA conducts an annual broadband survey, and the 2021 survey asked a question about affordability. The survey asked folks who didn’t have home broadband what they would be willing to pay, with the question, “At what monthly price, if any, would your household buy home Internet service?”

The NTIA estimates that there are over four million households that say they can’t afford broadband. The purpose of the survey was to understand the kind of price points that might be needed to get broadband to more of these households. I think the NTIA was surprised by the results – three-quarters of respondents said they would only get broadband if it was free.

I find this result to be troubling for several reasons. First, many of the homes in this category are the poorest homes that truly can’t afford broadband. I’m sure many of the folks who say they can’t afford broadband would love to have it like most of the rest of us. But as important as broadband is, it’s not more important than rent and food.

My second problem is that not everybody who says they can’t afford is telling the truth. How do I know this? My firm has been doing surveys in the industry for over twenty years, and we’ve asked some version of the same question in hundreds of surveys. What I have discovered is doing surveys is that the responses to any survey questions involving money are not fully reliable.

This is well-known by folks who give surveys for a living. As an example, as many as half of survey respondents give a false answer when asked the level of family income. There are a lot of conjectures about why this is so, but surveyors know you can’t fully trust the responses to most questions involving money.

A question I’ve often asked is what people would like to pay for broadband. That’s a little different than the question being asked by the NTIA, but not much different. The big difference is that we ask this question to everybody, not just those who say they can’t afford broadband. It’s not usual to see 20% or 30% of respondents saying they don’t want to pay more than $10 or $15 per month. Most of the people giving that response are already paying $60 or $70 per month for broadband. I have no doubt that the responses about wanting low rates are serious – folks really would love to save money. But the responses I see are clearly reflecting what folks wish that broadband cost, which is different than what they are willing to spend – we already know they are spending a lot more. ISPs that get this survey response never know what to do with the answer – they know they can’t afford to sell broadband at super-low rates if they want to stay in business.

My biggest concern is what the NTIA or State Broadband Offices will do with the results of this survey. I’m afraid they are going to come out with a policy that ISPs must offer a $30 broadband rate coupled with the $30 ACP plan reimbursement for qualifying homes. This would provide broadband to the homes that really can’t afford broadband – but it would also give low-price broadband to a lot of homes that are willing to pay more, but who will gladly take the discount.

I’ve looked at dozens of rural broadband feasibility studies this year, and most rural ISPs absolutely cannot make the business work if some portion of customers is only paying $30 (through the ACP). I’ve looked at a lot of plans where the rates have to be $60, $70, or even $80 for the ISP to cover all costs – particularly the debt used to provide grant matching funds.

The NTIA isn’t supposed to be able to direct rates in the BEAD grants. The IIJA legislation clearly says that the NTIA cannot force any kind of price control on grant applicants. But that doesn’t mean they can’t try this in a backdoor way, such as giving more grant points to ISPs willing to offer super-low rates. That probably doesn’t qualify as forcing low rates, but it sure feels the same.

My last trouble is that I sympathize with the NTIA if they try this. The agency wants to get broadband into every home, and the only way to do this for the poorest homes is to make broadband somehow free. I know that rural cooperatives and telephone companies might try to make this work. But as I tell all of my clients – you have to let the numbers speak. If an ISP needs $70 rates to break even and then offers a $30 broadband product as a way to get grants, they are going to put the entire business at risk if too many people take that product.

I know forcing low rates is tempting, and it would feel like a good policy. But you can’t put rate pressure on ISPs willing to work in rural areas where costs are already sky-high. If the government wants the poorest homes to get broadband, the right solution is to something like putting more money into the ACP. The right solution is not to ask ISPs to shoulder the economic burden of too-low rates.

Lobbying the BEAD Rules

Thirteen Republican Senators sent a letter to the NTIA asking the agency to change its approach in administering some of the provisions of the $42.5 billion BEAD grants. This is just one of the first of what I think will be many attempts to influence how the grant funding is awarded. We can’t ignore that there will be politics involved in determining who gets grant awards. That became inevitable for a grant program of $42.5 billion that also involves the States.

The letter specifically asked for changes related to rate regulation, technology preference, provider preference, workforce requirements, middle mile deployments, and the application review process.

Rate Regulation. The Senators point out that the legislation has a specific prohibition of the BEAD program suggesting or requiring broadband rates. The letter argues that the NOFO for the program suggests several requirements that will set or restrict rates, such as a suggestion that there should be a low-cost option established at $30 along with a still-undefined middle-class affordability plan.

Technology Neutrality. The Senators take exception to the NTIA’s clear preference for fiber and want to make sure that fixed wireless and cable technologies can be considered for grants.

Preferences for Grant Recipients. The Senators are concerned that the NOFO for the program insists that there is an equitable and nondiscriminatory focus for choosing grant winners. They fear that this is going to push state grant offices to favor non-traditional broadband providers instead of existing proven ISPs.

BEAD and Digital Equity Participation. The Senators want to make sure that there is no automatic link between a State participating in both the BEAD program and the Digital Equity program. This is the first time I’ve heard of this issue, and this means there are States considering not accepting the funding that will be used for getting computers into homes and offering digital literacy training.

Workforce Preference. The Senators believe that the BEAD rules favor ISPs that use a ‘directly employed workforce’ as opposed to contractors and subcontractors. That observation was a new one for me and will send me back to reading the NOFO more carefully. The Senators are also worried about the requirement that projects greater than $35 million must enter into a project labor agreement – something they say will be challenging in a market with a skilled labor shortage.

Middle-Mile Deployment. The Senators don’t like the requirement that any project that includes middle-mile routes must allow for interconnection with other carriers that want to use the fiber routes.

Unnecessary Burdens. The Senators say there are requirements that add burdens on grant applicants that were not included in the legislation. This includes issues such climate resiliency and system hardening for the useful life of fiber. They say such requirements add unnecessary costs and will delay the deployment of networks.

It’s an interesting list of objections. A few of the objections are on everybody’s hate list of the grant rules. Grant applicants do not want to figure out a climate resiliency plan and will be fearful if they do it poorly, they might not win a grant.

A few of the requests are clearly in favor of incumbent ISPs, such as any requirement that might force a State broadband office to consider non-traditional ISPs like cities.

And a few requests are things that concern all ISPs, such as the NTIA requiring broadband rates that are too low to make a business plan work.

Just as interesting are the items not included on the list. Small ISPs are worried about the requirement to have a certified letter of credit – something that doesn’t concern large ISPs. Not having this on the list makes me think the Senators are being prompted by big ISPs.

This blog is not meant as a criticism of the Senators’ suggestions. Every constituency in the country is going to have its own wish list of things the BEAD grants should emphasize or deemphasize. I’m hoping to collect these as I see them – it will be interesting when the dust clears to see who had the most influence on the BEAD rules.

Are BEAD Grants Large Enough?

One of the biggest questions associated with the $42.5 billion BEAD grant program is if that is enough money to solve the national rural digital divide. The funding will be allocated to states in a three-step process. First, States will get an automatic $100 million. Next, $4.2 billion will be directly allocated to States using the relative percentage of locations in each state defined as unserved and high-cost. This will rely on the new FCC maps, and the NTIA may still refine the definition of high-cost areas. The remaining $38.1 million will also be allocated to States using the new FCC maps, and will also use the relative number of unserved locations in each State.

The funding works out to be around $850 million per state, but the funding will vary significantly by state. Preliminary estimates have a number of states only getting $100 million – Connecticut, Delaware, District of Columbia, Hawaii, Maine, New Hampshire, North Dakota, Rhode Island, and Vermont. The largest estimated allocations are estimated to go to Texas at $4.2 billion and California at $2.8 billion.

States have been doing the math to see if they think the BEAD grant funding will be enough to reach every rural household with good broadband. I’ve only been able to find one article that cites an estimate of the effectiveness of the BEAD grants, but this one example raises some good questions.

The State of Minnesota is estimated to receive about $650 million in BEAD grant funding. In March of this year, the State Legislature approved $110 million for the existing Border-to-Border grant program, with most of the funding coming from federal ARPA funding given to the state. At that time, the State broadband office estimated that the state will need around $1.3 billion in total grant funding to reach everybody in the state. If that is a good estimate, then even after BEAD grants and the $110 million State grants, the state will be $540 million short.

This raises a lot of questions. First, inflation has hit the broadband industry hard, and I’ve seen a lot of estimates that the cost to build broadband networks is between 15% to 25% higher than just two years ago. That means that the $42.5 billion in BEAD funding is not going to stretch nearly as far as was estimated when Congress established the BEAD grants. This also raises the question of how much inflation will further increase costs over the years it’s going to take to build BEAD-funded networks. It’s not hard to imagine BEAD networks still being constructed in 2026 and beyond.

I’ve also seen estimates that the rules established by Congress and the NTIA for the BEAD grants could add as much as another 15% to the cost of building broadband networks compared to somebody not using grant funding. These extra costs come from a variety of factors, including the requirement to pay prevailing wages, expensive environmental studies that are not undertaken for non-grant projects, the requirement of getting a certified letter of credit, etc. The extra grant-related costs and the general inflation in the industry might mean that BEAD projects could cost 30% or more than building the same networks two years ago without grant funding.

This also raises an interesting question about how states allocated ARPA funding to broadband. Minnesota’s allocation of $110 million to broadband from ARPA is smaller than what many other states have done. As an example, my state of North Carolina allocated nearly $1 billion of the state’s ARPA money to broadband, and there are many states that have allocated $300 million or more to broadband. Part of the blame for a state like Minnesota not having enough money to reach everybody could be placed on the Legislature for not allocating much ARPA funding for broadband.

Another interesting question to be addressed is how State broadband offices will deal with areas where a 75% grant is not enough for an ISP to make a business case. From the feasibility work I’ve been doing this year, I think there are a lot more areas that fit the high-cost category than might be expected. The NTIA says that it might allow exceptions for grants up to 100% of the cost of assets – but asking for extra funding will probably open up the possibility for a State to instead fund less costly technologies. It might turn out that finding solutions for the many high-cost areas might be the unpredictable wild card in the BEAD grant process.

Finally, there are going to be areas where a State doesn’t make a BEAD grant award. It’s not hard to imagine a situation where only one ISP asks to serve an area, and a State broadband office decides that the ISP is unqualified to receive funding.

If the Minnesota estimate is even roughly accurate, it’s likely that Minnesota won’t be the only state that doesn’t receive enough BEAD money to get broadband to everybody. We’re not going to know this for sure until ISPs start applying for grants, but it won’t be a surprise if the BEAD grants are not large enough.

Averting a Mapping Disaster?

Alan Davidson, the head of the National Telecommunications and Information Administration, recently announced that the agency is canceling plans to use the first iteration of the new FCC maps that the FCC says will be available by early November. Davidson says that he feels obligated to let the FCC’s challenge process play out before using the mapping data. I’m sure this wasn’t an easy decision, but it says that it’s better to hold out for a more accurate map rather than settling for the first iterations of the new FCC maps.

This decision will clearly add more time and delay to the $42.5 billion BEAD grant program. But the decision to wait recognizes that using incorrect maps would almost inevitably mean lawsuits that could delay the grant program even longer.

The timing of the new maps became unfortunate when Congress mandated that the FCC maps must be used to allocate over $38 billion in grant funding to states. The FCC has been stating all summer that it hopes that the new maps will be relatively accurate and will fix many of the obvious problems in the current broadband maps. If it wasn’t for the pressure of the BEAD grant program, the FCC would have had several cycles of the new maps to smooth out kinks and errors in the reporting before they had to bless the new maps as solid. The NTIA decision to delay relieves the pressure to have the first set of maps be error-free – which nobody believes will happen. I have a hard time recalling any cutover of a major government software system that was right the first time, and the FCC’s assurances all summer have felt more like bravado than anything else.

Over the last few weeks, I’ve been talking to the engineers and other folks who are helping ISPs with the new maps. I didn’t talk to anybody who thinks the new maps will be solid or accurate. Engineers are, by definition, somewhat cautious folks, but I expected to find at least a few folks who thought the new maps would be okay.

I’ve been saying for six months that the likelihood of the new maps being accurate is low, and I was thinking about not writing anything more about mapping until we see what the new maps produce. However, I was prompted to write about mapping again when I saw a headline in FierceTelecom that quoted Jonathan Chambers of Conexon saying that the new maps will be a train wreck. Conexon is working with electric cooperatives all across the country to build broadband networks, which gives the company an interesting perspective on rural issues.

Jonathan Chambers cites two reasons for pessimism. One is the reason I already mentioned, which is that it’s irrational to use the outputs of a new federal mapping system to allocate billions of dollars between states. He says that there are simpler alternatives that would take all of the pressure off the new mapping system. He’s right, but unfortunately, Congress specifically required In the IIJA legislation that the FCC maps be used. It would take an act of Congress to change that ruling.

Chambers is also pessimistic about the challenge process that is being allowed for the new maps. He expects the challenges to be major and ongoing. It seems unlikely that the FCC is prepared to investigate the huge number of protests that could come from every corner of the country claiming that the new maps got the facts wrong.

My discussions with engineers raised other questions not mentioned by Chambers. Some engineers told me that the underlying mapping fabric has a lot of mistakes. This is where CostQuest, the firm that created the new mapping system, laid out the location nationwide of every possible broadband customer. This was a nearly impossible task in the short time the company had to create the maps. I’ve been working for years with local governments that use GIS data to define potential broadband locations, and it’s always a challenge to identify only those buildings where somebody might buy broadband and exclude buildings used for some other purpose.

My biggest concern is that ISPs are still allowed to report marketing speeds instead of actual speeds, and I fear that ISPs will be motivated to overstate broadband speeds in the new maps (like many have done in the old ones). Any areas designated by the maps to already have broadband available at 100/20 Mbps will be declared ineligible for the BEAD grants, and any ISP that wants to protect against being overbuilt has a high motivation to claim that speed – and it seems likely that many of them will do so. I don’t know if this is true, but my interpretation of the FCC map challenge is that the FCC won’t entertain challenges based on speed, but only on the coverage area. If that is true there will be a huge uproar from states and communities that get disadvantaged from deceptive reporting by ISPs.

I’ve also heard from ISPs in the last week that were unable to navigate the new mapping system by the deadline. These are relatively small ISPs, but many of them have built fiber and it’s not good to have them excluded from the maps. I’ve heard from multiple sources that the new mapping system is not easy to use. I’ve heard from ISPs who didn’t have an engineer who was able to certify the maps and just gave up.

I guess we’ll find out in a few months how the first draft of the maps turns out. The FCC says it will release the results by early November. I expect there are a whole lot of folks who are poised to compare the new maps to their local knowledge of actual broadband usage – and then the challenges will begin.